Warner slumps 11% after deal hopes fade

EMI, Warner Music abandon takeover proposals for each other

SimonKennedy

LONDON (MarketWatch) -- Shares in music publisher Warner Music Group slumped as much as 10% Thursday after hopes of a takeover deal with the U.K.'s EMI Group all but disappeared.

EMI (EMI) said it was abandoning its proposed $4.6 billion offer for Warner Music
WMG, -3.70%

And Warner Music said it would not continue with its proposed counter-bid for EMI.

Both companies cited uncertainty over whether a deal would get regulatory approval after a recent European court ruling that a similar alliance between Sony Corp.
SN, -2.59%
(6758) and Germany's Bertelsmann was wrongly approved.

Shares in Warner Music fell 7.6%, having dropped as much as 11.5% in early trading.

Shares in EMI lost around 1%, having lost as much as 6.7% in early London trading. See London Markets.

In a statement, EMI said that, although it continued to believe there was a strong argument for regulatory approval, it has decided not to continue with the offer "for the time being."

Warner Music said it will monitor the situation closely. But until uncertainty created by the ruling is resolved, Warner Music said it "does not believe that it would be prudent," to pursue a deal.

EMI and Warner Music, the world's third- and fourth-largest music groups, were both in favor of a tie-up, but have been battling over which company should buy the other since May.

EMI's most recent offer valued Warner Music at $31 a share, while Warner has offered 320 pence a share for the U.K. company. EMI and Warner Music have rejected each others' offers, which were both worth around $4.6 billion.

Michael Savner, an analyst at Bank of America, said in a note to clients that, while the immediate market reaction will be negative, he did not view Warner Music's decision as bad news for the company.

"In our view, Warner Music may be better served on its own, at least near term," he said.

"We were never completely convinced that the potential maximum estimated synergies were achievable and do not believe Warner Music needed to do a deal to remain competitive."

Earlier in July, the European Court of First Instance said the European Commission had wrongly approved an alliance between Sony Corp. and privately held Bertelsmann. See archived story.

The judgment was seen as possibly putting on hold consolidation in the music industry.

Shares in EMI had fallen around 15% since the court ruling and before Thursday's drop.

Before Thursday's fall, Warner Music had already lost around 17% since the ruling.

The court decision means Sony and Bertelsmann will have to reapply for European Commission approval for their joint venture.

EMI said it will review its decision to drop its bid "in the light of future developments."

"EMI's focus remains on driving its recorded music and music publishing businesses forward," the company added. "EMI remains confident that the global music industry has excellent long-term prospects driven by the rapidly expanding demand for digital music."

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